TVM_problems_1-9 - Time Value of Money Problems 1 Compute...

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Time Value of Money Problems 1. Compute the present value (PV) for the following income streams: a. $40 annually, forever discounted at 10 percent. b. $190 annually for 15 years, discounted at 15 percent c. a bond with a $140 annual coupon for 12 years, maturing at $1,000, discounted at 16 percent d. a payment stream discounted at 8 percent of $300 in year 1, $400 in year 2, $500 in year 3, $600 in year 4, and 0 in subsequent years 2. Compute the price of a 20-year bond with a par value of $1,000 and a 10 percent annual coupon when comparable market interest rates are a. 4 percent b. 5 percent c. 6 percent d. 8 percent e. 12 percent 3. Look at the following income streams: Year A B C 0 -1,000 -1,000 -1,000 1 100 500 200 2 200 400 300 3 300 300 500 4 400 200 300 5 500 100 200 a. Which of these will have the least present value and why? Which will have the greatest present value? b. What would the present value of the income streams be if they were discounted at 0 percent? c. Calculate the net present value of the income streams discounted at 12 percent.
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